Krugman on Europe

https://www.futureofcapitalism.com/2010/01/krugman-on-europe

Paul Krugman has a column in this morning's New York Times comparing America and Europe and arguing that Europe is doing pretty well, notwithstanding its high taxes and extensive welfare programs. Here's one key section: "It's true that the U.S. economy has grown faster than that of Europe for the past generation. Since 1980 — when our politics took a sharp turn to the right, while Europe's didn't — America's real G.D.P. has grown, on average, 3 percent per year. Meanwhile, the E.U. 15 — the bloc of 15 countries that were members of the European Union before it was enlarged to include a number of former Communist nations — has grown only 2.2 percent a year. America rules! Or maybe not. All this really says is that we've had faster population growth. Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there."

This is flawed in several ways. First, it's false to say that America turned right in 1980 but Europe did not. The same rightward tide that elected Ronald Reagan in 1980 had elected Margaret Thatcher in Great Britain in 1979, and brought Helmut Kohl to the chancellorship of Germany in 1982. Prime Minister Thatcher's policies weren't exactly Krugman-esque big government, and neither even were those of her successors in "New" Labor. Ireland's economic growth as the "Celtic Tiger" was made possible by what the World Bank notes were "large tax cuts" after 1987 and a "low corporate tax rate of 10 percent after 1979." To the extent that Europe has kept up with America at all since 1980, it has been because of growth in those European countries that have pursued American-style free-market-oriented policies.

Second, ignoring faster population growth to focus on per capita GDP instead of overall GDP misses a big part of the story. Why is America's population growing more than Europe's? First, because immigrants would rather come here than there, and second, because Americans feel prosperous and optimistic enough about their future to have more children than Europeans do. Population growth isn't just some statistical anomoly; it's a key measure of the success of a city, state, or country, a measure of human capital.